On the heels of a $450 million investment round at a $15 billion valuation, Checkout.com became Europe’s most valuable venture-backed business and fourth largest fintech globally.
Bradley Riss, the firm’s chief commercial officer, joins me on the podcast today to talk about the excitement around his firm’s cloud-based payments technology that tripled its processing volume in 2020, adding 500 new enterprise customers including Coinbase, Pizza Hut, H&M, and Klarna. In the U.S., the firm has opened an NYC and Denver office to meet growing demand for enterprise payment solutions.
Our company works in the digital payments sector. We are an end to end payments organization, essentially doing the same job as every PSP advertises, which is helping merchants and partners the world over collect money from their customers around the world. It’s going a bit beyond that. Obviously, the cornerstone of card acquiring is supplemented by the ability to offer local payment methods. Especially last year, we saw huge growth in our payout solutions, as well. And then, of course, we offer various other ancillary services related to the core processing — things like fraud, issuing. These are all areas we look to help merchants manage.
Under one roof
A lot of companies do parts of payments — it’s very hard to find someone who does everything all under one roof. We consider ourselves a global acquirer, which means that we have the ability to offer processing services on a very localized basis all around the world. You don’t just get an acquiring license by clicking your fingers. Everyone tends to go through the same sort of growth path — at first, you become a gateway, then a facilitator, then once you have enough volumes, and you can demonstrate you’ve got a robust enough balance sheet, compliance, and governance, you can talk with the schemes and you can potentially be awarded an acquiring license. Our first one was in the UK and since that point, we’ve rolled out many more around the world.
We look to compare ourselves with organizations that can offer a single API to connect to the platform, a single technology stack, within the same data architecture, and equally be able to offer that breadth of offering that the top merchants around the world really need. They have customers everywhere. So you have to be able to support them everywhere. Once you get to that position, you’re actually breathing quite rarefied air. We’re not the first to collapse the gateway, processor, fraud, acquiring module into one organization. There are companies out there that did that decades ago. They generally grew through acquisition. What that tends to lead to is having disparate technology platforms, which are not really communicating with each other as optimally as they could be on the inside.
Their marketing banner looks good — they’re everywhere. But as you peel back the onion, you realize there’s a lot of fragmentation and systems. There were companies I think you’ve even had on your show that were the first, but they offer a single state solution. There really hasn’t been much disruption or many entrants within that space. So we consider ourselves the latest organization to adopt, what I guess is, the optimal payment setup: transactions from our customers hit us and then we pass them directly — with no intermediaries in the middle — to where they need to go, to the schemes.
The core proposition
There’s a lot of associated value with that. You can go into a very dark rabbit hole, but fundamentally, it boils down to two really cool headlines: using that architecture and the data you’re collecting to help drive enhanced authorization rates and on the other side, using that data to help provide better fraud prevention by empowering the machine learning models that we’re using. When you put those two together, this is payments.
There isn’t a silver bullet. We don’t promise something, like we’re going to increase their sales by 75%. But again, the large merchants in the world are now increasingly looking at payments as a core competency. And if they can squeeze out that extra 50 basis points, even from authorization rates, in terms of customer lifetime value, that adds up for the largest guys to see, you know, tens of millions of dollars to the bottom line.
That’s still the core premise of how Checkout grew up.
Case study: TransferWise
They’re a really good example, because we helped them on both using debit cards to upload balances into their ecosystem and then on the disbursement side. They have needs around how they’re doing payouts. So we may not be helping them along in every corridor. They may have their own banking infrastructure. For example, some of the newer tools that have come out in the last years — like Visa Direct and MasterCard Send — are a nice alternative if you want to provide an expedited payout on a Sunday.
Distributing the latest tools to the ecosystem
We make sure that we have the latest tools available as the schemes release them — it’s also really key to the overall proposition we have. I think you’re looking at that holistically across the industry: the schemes, for a long time, didn’t innovate that much, because there wasn’t really the competitive pressure to do so. Now, there are a lot of existential threats, either with the rise of UnionPay and Alipay. Or, it could be open banking initiatives. So they’ve really had to innovate, and they’ve actually done a very good job of it. So now you’re starting to see a lot more tools coming out from the schemes themselves. Of course, just releasing them doesn’t necessarily mean that all of their partners downstream have them available for the ecosystem at the same time. That’s another area we focus on — trying to stay as current as possible, making sure the latest tools, even if they’re not ones we created, are available for our customers.
The U.S. market
The US actually has a relatively simple market. From a payments perspective, it’s very card dominant. People have ACH. Innovators like Plaid especially deserve a special mention, because that Plaid link turned what was a pretty horrible UX into something which is palatable.
The schemes get this, and they are releasing products which are designed to compete with traditional banking rails and open up new revenue streams for themselves. A lot of this is related to global remittances. So, how do they compete with SWIFT? And then on a domestic basis, how do they compete with things like ACH?
Domestic expansion plans
You can’t ignore the US. And when we look at at the partner and merchant base which is in this country, it’s pretty astonishing. You see a lot of innovation elsewhere in the world. Our head office in the UK — there’s a fintech hub in London. But it’s still very hard to compare anything to the Bay Area group of companies. When you think our job is to help facilitate any movement of money on a global basis for the largest companies in the world, America is very much front and center there.
So the San Francisco office, which we’ve had for a while now, was a natural first step for us. But of course, there are great companies all across this country. Denver is turning into a second tech hub — we’re not naive to that fact and we want to have regional diversity. It’s also a big country. We have offices in Berlin and Barcelona and London. And that’s covering less of the landmass than the eastern seaboard.
Having a New York office, as well, made a lot of sense for us. And it’s something that was always in the plans with the investment to put boots on the ground and really try to build out a local presence.
Progress on the ground
Payments has always had hubs. The US is no exception to that. And there’s been regions like Cincinnati and some of the companies that were there. But San Francisco, for me, still remains that epicenter. 10 years ago, most companies didn’t have heads of payments. So it’s kind of a recognized sector that’s grown up so quickly in the last decade — that knowledge center is still actually a really important element of it. People who have experienced and actually understand how the industry was put together, where it came from, and, of course, where it’s going.
That said, we also look outside of the industry for that reason. You want to get fresh ideas. And I think the US has always been an incredible employment market. I think the adage is it’s not always easy to hold on to developers in San Francisco. But as we look to build out the teams here, we definitely haven’t struggled with hiring at all, just because there is that really great talent pool, and a lot of diversity in it as well, which is always nice to have.
Then on top of that, Checkout may be a little bit under the radar because we’re B2B fintech. We get a lot of interest from people who’ve been in the industry who recognize that we’re doing something quite progressive. And maybe, that may be the next step in an iterative journey of just helping to improve global payments, acceptance and the movement of money in general.
Making payments strategic
Should everyone be a fintech? I don’t think so. To be honest, I think sometimes there’s a lot of advantages to being and sometimes there’s not. At the end of the day, focus on the customer — I think that’s always the way to approach these problems. There will naturally be a lot of interest for merchants who believe that they’re going to get better cost structures. You need to look at what problem you’re solving for. I think that’s always where you have the question around traction — are you able to actually deliver a solution to the market that is an enhancement of what’s in place today?
It’s about the movement of money. We linked things like payouts, treasury management, services, as well. Once you collect funds from your customers across the globe, it seems a bit counterintuitive that you then have to send to a bank to manage. So, you can do it all through the same system, the same flow, the same architecture — just receive one settlement with already competitive converted fund rates. It seems like it’s going to solve an operational headache, but equally, it is going to be a more efficient flow as well. That’s our approach: looking at products that really help with the overall movement of money. We refer to it as connected finance, which is kind of our internal branding. I don’t think it’s become external just yet. But it’s quite a nice way to phrase it because you have the connected payments element.
We’ll keep doing what we’re doing. It’s a big world out there. And while we can impact our share of wallet on a global e-commerce space, it is still tiny comparatively. So there’s a lot of expansion, staying true to our principles and trying to roll out that acceptance product, that core acquiring product that we have, and making sure it’s available in all corners of the earth.
We are new in many of the markets around the world. Many of our offices have opened within the last few years. So we are still very much at the beginning of that journey. However, in conjunction with that, there is a lot of innovation taking place, there are a lot of local nuances. That’s always the way I think about payments is that it’s the very definition of international business: you go global, but you really have to think local. So it’s always going to encompass making sure that we’re adhering to the local standards, the local preferences.
Of course, that means having the relevant payment methods that may be preferred in that country. But it also means looking at some of the more advanced tools. How can we help the world get a little bit closer together? Payments has been a bit of a laggard, just because of the different regulatory and financial systems that sit behind it. So we view our position as central to that of it, helping to alleviate a lot of the pain, grease the wheels and just encouraging global commerce to flourish.